The Boeing Company reported second-quarter revenue of $15.8 billion, GAAP loss per share of ($5.21) and core loss per share (non-GAAP)* of ($5.82), reflecting the previously announced 737 MAX charge (which reduced revenue by $5.6 billion and earnings by $8.74 per share) as well as lower 737 deliveries partially offset by higher defense and services volume (Table 1). Boeing recorded operating cash flow of ($0.6) billion and paid $1.2 billion of dividends.

The previously issued 2019 financial guidance does not reflect 737 MAX impacts. Due to the uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet, new guidance will be issued at a future date. Boeing is working very closely with the FAA on the process they have laid out to certify the 737 MAX software update and safely return the MAX to service. Disciplined development and testing are underway and we will submit the final software package to the FAA once we have satisfied all of their certification requirements. Regulatory authorities will determine the process for certifying the MAX software and training updates as well as the timing for lifting the grounding order.

“This is a defining moment for Boeing and we remain focused on our enduring values of safety, quality, and integrity in all that we do, as we work to safely return the 737 MAX to service,” said Boeing Chairman, President and Chief Executive Officer Dennis Muilenburg. “During these challenging times, teams across our enterprise continue to perform at a high level while delivering on commitments and capturing new opportunities driven by strong, long-term fundamentals.”

Operating cash flow was ($0.6) billion in the quarter, primarily reflecting lower 737 deliveries and production rate as well as timing of receipts and expenditures (Table 2). During the quarter, the company paid $1.2 billion of dividends, reflecting a 20 percent increase in dividends per share compared to the same period of the prior year.

Table 3. Cash, Marketable Securities and Debt Balances

Quarter-End

(Billions)

Q2 19

Q1 19

Cash

$9.2

$6.8

Marketable Securities1

$0.4

$0.9

Total

$9.6

$7.7

Debt Balances:

The Boeing Company, net of intercompany loans to BCC

$17.3

$12.6

Boeing Capital, including intercompany loans

$1.9

$2.1

Total Consolidated Debt

$19.2

$14.7

1Marketable securities consist primarily of time deposits due within one year classified as “short-term investments.”

Cash and investments in marketable securities totalled $9.6 billion, compared to $7.7 billion at the beginning of the quarter (Table 3). Debt was $19.2 billion, up from $14.7 billion at the beginning of the quarter primarily due to the issuance of new debt.

Total company backlog at quarter-end remained healthy at $474 billion and included net orders of $9 billion.

During the quarter, Commercial Airplanes delivered 90 aeroplanes, including 42 787s, and captured orders for two 777 freighters for DHL and six 767 freighters for FedEx. Highlights from the Paris Air Show included a letter of intent from IAG for 200 737 MAX aeroplanes as well as several wide-body commitments. The 777X program is progressing well through pre-flight testing. While the company is still targeting late 2020 for first delivery of the 777X, there is a significant risk to this schedule given engine challenges, which are delaying first flight until early 2020.

Defence, Space & Security second-quarter revenue increased to $6.6 billion primarily driven by higher volume across derivative aircraft, satellites, and weapons (Table 5). Second-quarter operating margin increased to 14.7 percent primarily due to a gain on sale of property and lower cost growth on the KC-46 Tanker program compared to the second quarter of 2018.

During the quarter, Defense, Space & Security received contracts for MH-47G Block II Chinook for the U.S. Army Special Operations, F/A-18 service life modification for the U.S. Navy, Joint Direct Attack Munition for the U.S. Air Force, and Wideband Global Satellite Communication for the U.S. Air Force. Significant milestones achieved during the quarter included completion of the first T-X Trainer flight test on contract with the U.S. Air Force and the final parachute test for the Commercial Crew spacecraft.

Backlog at Defense, Space & Security was $64 billion, of which 31 percent represents orders from customers outside the U.S.

During the quarter, Global Services was awarded Performance-Based Logistics contracts for AH-64 Apache for the U.S. Army and KC-767A Tanker for the Italian Air Force. At the Paris Air Show, Global Services signed commitments with ASL Aviation Holdings and GECAS for up to 45 737-800 converted freighters and announced digital solution agreements with Delta Air Lines and JetBlue Airways.

Additional Financial Information

Table 7. Additional Financial Information

Second Quarter

First Half

(Dollars in Millions)

2019

2018

2019

2018

Revenues

Boeing Capital

$75

$72

$141

$137

Unallocated items, eliminations and other

($201)

$37

($402)

($22)

Earnings from Operations

Boeing Capital

$37

$24

$57

$44

FAS/CAS service cost adjustment

$365

$317

$729

$682

Other unallocated items and eliminations

($498)

($396)

($1,205)

($722)

Other income, net

$107

($15)

$213

$51

Interest and debt expense

($154)

($109)

($277)

($211)

Effective tax rate

14.2%

15.1%

27.5%

13.9%

At quarter-end, Boeing Capital’s net portfolio balance was $2.3 billion. Revenue in other unallocated items and eliminations decreased primarily due to reserves related to cost accounting litigation. The change in earnings from other unallocated items and eliminations is primarily due to increased enterprise research and development investment. The effective tax rate for the second quarter decreased from the same period in the prior year primarily due to lower pre-tax earnings in the current year.

Outlook

The previously issued 2019 financial guidance does not reflect 737 MAX impacts. Due to the uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet, new guidance will be issued at a future date.

Non-GAAP Measures Disclosures

We supplement the reporting of our financial information determined under Generally Accepted Accounting Principles in the United States of America (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Core operating (loss)/earnings is defined as GAAP (loss)/earnings from operations excluding the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core operating margin is defined as core operating (loss)/earnings expressed as a percentage of revenue. Core (loss)/earnings per share is defined as GAAP diluted (loss)/earnings per share excluding the net (loss)/earnings per share impact of the FAS/CAS service cost adjustment and Non-operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to Commercial Airplanes and BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. Management uses core operating (loss)/earnings, core operating margin and core (loss)/earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core (loss)/earnings measures provide investors additional insights into operational performance as they exclude non-service pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts. A reconciliation between the GAAP and non-GAAP measures is provided on page 13-14.

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow without capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation of free cash flow to GAAP operating cash flow.